Banco de Mexico Intervenes in Currency Markets to Halt Plunge of the Mexican Peso



Banco de Mexico issued a communique today, saying The Exchange Commission - which is tasked with overseeing Mexico's exchange rate policy - intervened in the FX markets by selling dollars to halt the drop of the Mexican peso.

The Mexican central bank also stated that additional interventions could take place:
“The Exchange Commission does not rule out the possibility of re-intervening in the foreign exchange market in other sessions in the event of exceptional conditions.”
While the exact amount of dollars sold by the Mexican central bank has not been publicly disclosed, several FX traders told Reuters that the intervention amounted to approximately $1 billion dollars.

The central bank of Mexico was forced to prop up the nation’s sagging currency in February of last year as well, when it sold $2 billion in the open market.

The peso’s descent was halted for a short while in December, 2016, when Banco de Mexico hiked interest rates by 50 basis points, however, when Ford Motor Company announced it would forgo a $1.6 billion plant construction project in Mexico two days ago as a result of President-elect Trump’s protectionist policies, the peso plunged 4.6% in the space of two days.



The peso hit an all-time low of 21.621 against the dollar on Wednesday - about 1% lower than the previous all-time low of 21.3865, which was recorded on November 11, 2016. At press time, the USD/MXN pair is trading at 21.39!



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2 comments :

  1. The downward pressure on the Mexican Peso is of course driven by political fears of economic actions by the Trump Administration. The Mexican economy as a whole is, however, fairly stable. The Mexican economy is more open to trade, and the long run question is whether Trump's political actions can bypass the realities of trade. Now that he has been elected, all the simplistic, populist, vote pulling, rhetoric is being watered down. In the end, the realities of free trade require that factories be constructed where they are more economically advantaged, rather than politically beneficial. Once really in control expect to see more realistic "compromises" made in the interest of business. In other words, profit will win over rhetorical sound bites.

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  2. I can only see this getting worse as fears of the Trump presidency really take hold.

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